Using 401(k) assets to pay for expenses during the divorce process can be costly. If you are under 59 ½ years old, you may have to pay income tax and a 10% penalty on the withdrawal. It may be a better option to take a loan against the 401(k) up to maximum of $50,000. But before resorting to raiding any retirement funds, it would be best to consult with a financial professional such as a certified divorce financial analyst who can review your options. Read this article for more information.
A divorce forces a reset of your financial and retirement goals, especially if you are older and closer to retirement. There are some actions you can take to strengthen your financial condition including implementing a qualified domestic relations order, understanding spousal benefits under the Social Security program, and updating your retirement plan. This article provides more detail regarding steps to take after your divorce.
Divorcing at or near retirement creates additional risk to women’s financial security. The statistics indicate that after divorce an average woman’s standard of living drops by 45% as compared to 21% for an average man. According to this article, there are several reasons that may explain this gap including losing employer- based health coverage, reduced social security benefits because of a shorter work history and unfavorable division of marital assets whereby the wife may give up retirement assets to keep the marital home.
There are several financial issues that should be carefully considered during divorce. For example, workplace retirement accounts like 401(k)s and pensions must be divided pursuant to a qualified domestic relations order (QDRO). Also, student loans taken out before marriage and then repaid with marital funds may provide an opportunity to claim a credit when negotiating an equitable distribution of marital assets. This article lists some other important issues.
Following equity in the marital home, retirement plan assets usually represent a large chunk of the marital assets. Splitting the retirement plan assets is accomplished by using a qualified domestic relations order (QDRO). Depending on the type of plan, the ex-spouse of the plan participant rolls over her/his share of the retirement plan assets into an IRA. If funds are needed post-divorce, the ex-spouse is also allowed to take an early distribution without a penalty if under age 59 ½. However, taxes will have to be paid on the distribution. Read this article for additional tips on managing retirement assets post-divorce.